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The Grade Inflation Conundrum

Research by Professor Vrinda Kadiyali illustrates the issues even an elite university faces around grade inflation

By John E. Young

Universities that take the wrong approach to reducing grade inflation—the steady upward creep in average marks that is widespread in American higher education—may actually make it worse, according to economist Vrinda Kadiyali. Kadiyali, the Nicholas H. Noyes Professor of Management at the Samuel Curtis Johnson Graduate School of Management at Cornell University, analyzes competitive strategies using game theory and econometric modeling.

Grade inflation is a particularly notable phenomenon in elite institutions. According to the Boston Globe, for example, in 1950, about 15 percent of Harvard students got a B+ or better; in 2007, more than half of Harvard grades were in the A range.

Kadiyali believes that inflated grades lead to failures in the “matching markets” that connect graduates with employers and more advanced academic opportunities. Grades that fail to accurately convey academic performance mislead employers and others, and could distort hiring and salary decisions.

This leads to economic losses and reduced overall welfare, argues Kadiyali. “Employers lose if new hires underperform, and low-performing students may be set up for failure if they are matched with opportunities that are too demanding,” she explains. “Better students also stand to lose if their grades don’t accurately communicate their abilities to employers.”

Universities have tried to address grade inflation via two general approaches. One is grade rationing, the deliberate restriction of how many high grades are awarded. By “forcing” grading curves, grade rationing reins in lenient professors. The second approach is what Kadiyali calls “putting grades in context”: providing information on grade distribution.

Cornell University took the second approach in 1996 when its Faculty Senate voted to publish median undergraduate course grades on the Internet and include them on student transcripts (technical issues delayed the latter until 2008). Though reducing grade inflation was not necessarily the primary impetus for the move, the university committee that recommended it said “more accurate recognition of performance may encourage students to take courses in which the median grade is relatively low.”

In a 2009 paper, Kadiyali and her colleagues Talia Bar and Asaf Zussman (currently with Binghamton University and Hebrew University, respectively) documented what actually happened after this change: students, on average, avoided more difficult courses. “The effect wasn’t pervasive—higher-ability students were less likely to shop for easier courses—but, overall, it drove up enrollment in leniently graded classes, and pushed up Cornell’s average grades,” Kadiyali says.

The researchers termed this phenomenon “compositional grade inflation,” to distinguish it from “classic grade inflation,” in which individual instructors simply raise the grades they give. They found that compositional grade inflation accounted for about half of a .16-point increase in grades between 1998 and 2004. Their work eventually led Cornell (in 2011) to stop publishing median-grade information on the Internet, though it is still provided on official transcripts.

The same team’s most recent paper, “Putting Grades in Context,” (2012) explores the dynamics of the process that drove up Cornell’s average grades, using an economic model based on game theory to predict the outcomes of a variety of grading-policy scenarios.

“What the model reveals is that increased information does not always lead to optimal results,” says Kadiyali. “The crucial question is to whom the grade information is given.” Employers may use it to figure out which students are truly academically distinguished. But providing it to students may backfire, she argues, because a significant share of them will use it to choose easier classes and thus attain a higher GPA. An important side effect is that instructors might respond to declining enrollment in their courses by making them easier.

Speeding student response to such information is today’s nearly instantaneous electronic communications. A few years ago, median-grade information would have been provided only in print, and locating and analyzing it would have required significant time and effort. Today, most students can have this data in their smartphones on the day of its release—websites like CourseRank and others track courses, professors, and grades for them.

Cornell’s faculty may have been surprised that students of such a selective institution would actively seek out easier courses. But it seems clear that with relentless pressure to keep their GPAs high, even elite students are sometimes inclined to choose an easier path. Perhaps some students select easier courses in order to take on heavier course loads or additional student activities.

A final consideration is that universities compete with each other. “If only Cornell cracks down on grade inflation, and our competitor schools do not, how will our students fare on the job market as they compete with those with higher GPAs?,” asks Kadiyali. “This is a classic prisoner’s dilemma, where each school acts in its own self-interest, but overall we’re all worse off.”